Telephone Tax Refund

The telephone tax rebate could potentially impact every 2006 return you prepare, and may even bring you business from new sources like schools, clubs, and organizations.

The telephone excise tax started during the Spanish-American War when telephones were considered a luxury. As a result of recent court cases, the government stopped collecting federal excise taxes on long-distance telephone service beginning August 1, 2006. A refund is available for taxes billed between March 1, 2003 and July 31, 2006.

Safe Harbor Provision For Individuals
To prevent individuals and tax preparers from having to search through 41 months of telephone bills, the IRS established a safe harbor provision. For individuals, the safe harbor is based on the number of exemptions on their tax return. A taxpayer with one exemption will receive a $30 refund, with two exemptions will receive $40, with three exemptions will receive $50, and with four or more exemptions will receive $60. A taxpayer with zero exemptions, or who wants to itemize their amounts, can claim the exact amount on Form 8913, Federal Excise Tax Credit.

Individuals that do not need to file a federal tax return can still claim the credit by filing form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax. Both Form 8913 and Form 1040EZ-T are available in Drake Software. Taking the standard credit in the Drake program is easy: simply check the box on line 71 of the payment screen.

Break Out Your Calculator For Business Clients
Business and tax-exempt organizations will also qualify for the telephone tax refund, but the math gets a little more complicated in these cases. To calculate their credits, you must have all the total amounts from their telephone bills for the entire 41-month period (or for the portion of that timeframe in which they operated). You also need the details on their April 2006 and September 2006 telephone bills.

The April 2006 bill will include the federal excise tax on both local and long distance calls, while the September 2006 bill will only contain the tax on their local calls. First, you divide the amount of their April federal telephone excise tax by the total of their April telephone bill to compute their April percentage. Repeat the same calculation with their September bill to determine their September percentage. Now subtract their September percentage from the April percentage. This amount will be their gross federal long distance percentage.

This percentage will then be limited to 2% for companies with 250 or fewer employees, and 1% for more than 250 employees. Multiply the appropriate (limited) percentage by the total of their telephone bills to determine their telephone tax refund.

Worksheet Available In Drake Software
Still confused? Drake has a worksheet that steps you through the process described above. While you may still have to go through a shoebox full of receipts, the Drake worksheet at least simplifies the calculation. After the first one or two times you calculate the refund, it will probably make more sense.

You can certainly expect questions from your clients about the telephone tax refund. On most individual returns, you are just a checkbox away from an additional refund for your customers. While your business customers will involve a lot more calculations, it is not a difficult calculation once you are used to it. If you want a difficult calculation, try figuring out how much you are going to charge for the telephone tax refund preparation!

From January 2007

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